Out-of-State Business's Failure to Register in New York Caused it to Lack Standing to Sue

On July 24, 2019 Justice Borrok of the New York County Commercial Division issued a decision in Intelligent Tech. & Design, D.O.O. v. NY Renaissance Corp., 2019 NY Slip Op. 32256(U), holding that an out-of-state business's failure to register in New York caused it to lack standing to sue, explaining:

Section 808(a) of the New York Limited Liability Company Law provides:

A foreign limited liability company doing business in this state without having recieved a certificate of authority to do business in this state may not maintain any action, suit or special proceeding in any court of this state unless and until such limited liability company shall have recieved a certificate of authority in this state.

Within one hundred twenty days after the filing of the application for authority with the department of state, a copy of the same or a notice for containing the substance thereof shall be published once in each week for six consecutive weeks, in two newspapers of the county within this state in which the office of the foreign limited liability company is located, one newspaper to be printed weekly and one newspaper to be printed daily, to be designated by the county clerk.

Section 802 requires that a foreign limited liability company must submit an application for authority to do business in New York setting forth, among other things, a designation of the secretary of state as its agent upon whom process against it may be served and the post office address within or without this state to which the secretary of state shall mail a copy of any process against it served upon him or her.

It is undisputed that ITD has not complied with Section 802 in that it has not applied for authority to do business in New York, it has not designated an agent for service of process, and it has not met the publication requirement under Section 802(b)(i) set forth above.

Section 803 provides a non-exclusive list of activities which do not constitute doing business in New York:

(1) maintaining or defending any action or proceeeding, whether judicial, administrative, arbitrative or otherwise or effecting settlement thereof or the settlement of claims or disputes;
(2) holding meetings of its members or managers;
(3) maintaining bank accounts; or
(4) maintaining offices or agencies only for the transfer, exchange and registration of its membership interests or appointing and maintaining depositaries with relation to its membership interests.

ITD's activities in New York are not limited to and do not fall within any of the non-exclusive enumerated list of activities set forth in Section 803.

In determining whether a foreign limited liability company is doing business in New York for purposes of Limited Liability Law § 808, courts look to the analogous provision for foreign corporations under Business Corporation Law § 1312.

Rather than applying a precise formula, the determination of whether a foreign company is doing business in New York under Business Corporation Law § 1312 must be made on a case-by-case basis, considering the nature of the business at issue. The burden of proving that a foreign company is doing business in New York lies with the party invoking Business Corporation Law § 1312 to challenge the plaintiff's capacity to maintain the action in New York. The relevant inquiry is whether the foreign company is engaged in a regular and continuous course of conduct in the State. The foreign company's activities in New York must be so systematic and regular as to manifest continually of activity in the jurisdiction.

In the case before the court, ITD, a foreign limited liability company organized under the laws of the Republic of Croatia with its principal place of business located in Rijeka, Republic of Croatia, which is not authorized to do business in New York under Section 802 of the Limited Liability Company Law, brought this action alleging breach of contract by NYR relating to specialized facade design and construction work allegedly performed by ITD in New York in connection with three construction projects in New York City.
. . .
In other words, NYR has met its burden in establishing that ITD is doing business in New York. Inasmuch as ITD has not complied with Section 802 of the Limited Liability Company Law, ITD lacks the capacity to bring this action under Section 808 and NYR's motion to dismiss is granted.

(Internal quotations and citations omitted).

New York procedural law is relatively straightforward, but there are rules, like the rule discussed in this decision, that can be traps for the unwary. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding New York procedural law.